After being elected Pope in 1181, he lived at Rome from November 1181 to March 1182, but dissensions in the city compelled him to pass the remainder of his pontificate in exile, mainly at Velletri, Anagni and Verona.

He disputed with the Holy Roman EmperorFrederick I over the disposal of the territories of the late Countess Matilda of Tuscany. The controversy over the succession to the inheritance of the Countess had been left unsettled by an agreement of 1177, and the Emperor proposed in 1182 that the Curia should renounce its claim, receiving in exchange two-tenths of the imperial income from Italy, one-tenth for the Pope and the other tenth for the cardinals. Lucius consented neither to this proposition nor to another compromise suggested by Frederick I the next year, nor did a personal discussion between the two potentates at Verona in October 1184 lead to any definite result.

During the conflict between Frederick I and the papacy, the problem of heresy required a political solution. In 1184, Pope Lucius III decreed Ad abolendam that all "counts, barons, rectors, [and] consuls of cities and other places" who did not join in the struggle against heresy when called upon to do so would be excommunicated and their territories placed under interdict – and declared that these provisions joined the apostolic authority of the church with the sanction of imperial power.[4]

In the meantime other causes of disagreement appeared when the Pope refused to comply with Frederick I's wishes as to the regulation of German episcopal elections which had taken place during the schism, especially as regards a contested election to the See of Treves in 1183.

In pursuance of his anti-imperial policy, Lucius declined in 1185 to crown Holy Roman Emperor Henry VI as Frederick I's destined successor, and the breach between the Empire and the Curia became wider on questions of Italian politics.